Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs, contributes his knowledge and ideas about issues that affect the Midwest.

Tuesday, February 25, 2014

A Big Win for Chicago

Chicagoans are justifiably ga-ga over the news that their city has been awarded a $320 million digital manufacturing institute with a mandate to invent the future.

At first glance, here’s what it means:

It’s a big deal, all right. The Digital Manufacturing and Design Institute, backed by $70 million in federal money, is to be an idea factory for advanced manufacturing. It could make Chicago a global center for industrial research and restore the city’s status as a global center of manufacturing.

But this is not to say that Chicago is about to be, once again, the City of the Big Shoulders. Its days of powerhouse mass manufacturing are over. The institute should spin off new companies, create good jobs, bring in serious money and contribute to the city’s wealth through exports. But the jobs that were lost when the smokestack industries closed aren’t coming back.

The institute will cement Chicago’s status as a global city. But the very forces that have thrust part of the city into the global future are the same forces that have left the rest of it behind in the industrial past. Those forces won’t go away: indeed, they’re the forces that have created this new institute.

The institute, announced Tuesday by President Obama, is one of several manufacturing institutes to be scattered around the nation, to emulate Germany’s success in leveraging government money to scale the commanding heights of the global economy.

At the moment, the Chicago institute is backed by $70 million in Defense Department funding, plus at least another $250 million in private and other government funding, plus the participation of 23 universities and more than 40 corporations, with more expected to sign on. Both the universities and the corporations are leaders in research, so the institute represents both a pooling of knowledge and the likelihood of spin-off companies.

The program will be run by UI Labs, a University of Illinois project formed to bring together the Midwest’s top universities and corporations. It will be located on Goose Island, on the fringe of Chicago’s Loop. A more spacious site would have been the old U.S. Steel South Works, on the city’s south side, but Goose Island is close to the Loop, to universities and to 1871, the city’s focal point for start-up innovations: in this global economy, it’s important for researchers and innovators to be close enough to swap ideas over lunch or drinks.

For many people, just the news that all this is being funded by the Defense Department is enough to turn them off. Wrong. If the Pentagon blew it in Iraq, it’s also responsible for some of the transformative technology of the last half century.

When the Soviet Union launched Sputnik in 1957, President Eisenhower responded to the collective national panic by setting up a government agency called ARPA, for Advanced Research Projects Agency. It later added a “D” to its name, for Defense, and became DARPA.

Since then, DARPA has been responsible, in whole or in part, for no less than the Internet (which originally was called the Arpanet), the world-wide web, Google mapping, Siri, GPS, virtual reality and cloud computing. For better or for worse, our 21st century would be unimaginable without DARPA.

These are the folks who are now betting their money on Chicago.

Two other similar institutes are being funded in the Midwest – one focused on light-weight and modern metals in Detroit and another on 3-D printing in Youngstown. Like Chicago, both are one-time industrial centers that lost their industry. But only Chicago has transformed itself into a global city, with manufacturing in its DNA but with a new generation of researchers and innovators to put this historical knowledge to use.

This is what Chicago leaders expect the new institute to do. The city has used its old expertise in manufacturing to turn itself into a center of global business services. It has scientific smarts in its major universities and in such institutions as the Argonne National Laboratory. It is developing a start-up culture. It already is the capital of the Midwest: of the research universities that have signed on to this project, 18 are Midwestern.

Until now, it has lacked serious venture capital, in the amounts that powered Silicon Valley. But the Goose Island project has already received commitments from several venture capital firms, including Marc Andreesen’s fund, Andreesen Horowitz. Andreesen is the University of Illinois grad who had to go to California to get money and other backing for his idea, which became Netscape.

Backers expect the new lab to spin off enough licensing and royalty income to survive and grow. At the same time, they expect it to generate many new smaller companies and eventually thousands of jobs.

Well, maybe. The institute will bring money flowing into the city, which it badly needs to pay its bills and plug its deficit. It certainly will increase the city’s export earnings, enabling it to compete in the world.

But all by itself, it won’t reverse the half-century bleeding of manufacturing jobs. The Midwest as a whole has lost millions of these jobs to the south, to Asia, to Mexico and to automation and technology. Chicago itself has lost more than 50,000 manufacturing jobs just since 2006, or 21 percent of its total: hundreds of thousands of other factory jobs went away from 1960 on.

This economic collapse caused Chicago’s split into two cities – the prosperous Loop-based global city and the aching, crime-ridden inner city, which once relied on heavy industry.

The institute will lead to new jobs, but they’ll go to the highly-skilled and highly-educated. Much of the work will be automated. Perhaps Chicago can educate its kids for these jobs, but there’s no guarantee the jobs will materialize.

In short, this new institute won’t solve all Chicago’s problem. But it will help solve some of them, and that’s not bad.

The Global Midwest Initiative of The Chicago Council on Global Affairs is a regional effort to promote interstate dialogue and to serve as a resource for those interested in the Midwest's ability to navigate today's global landscape.